Magical Manufacturing Thinking: Manufacturing NOT the Bright Spot in the U.S. Economy

A great deal of economic thinking in the U.S. has become based on fads and popular delusions and the current one that says manufacturing is back and leading the recovery is a prime example. Don’t worry about the United States losing a greater share of its manufacturing jobs in the last decade than we did in the Great Depression, this thinking goes, manufacturing is coming back! TheNew York Times journalist Floyd Norris’s recent article is emblematic of such thinking.

Norris’s piece looks at some recent data to draw what are ultimately faulty conclusions:

In total exports, including manufactured goods as well as other commodities like agricultural products, the United States ranked second in the world in 2010, behind China but just ahead of Germany.

Of course we do, we’re the largest economy in the world. Besides, it’s not exports that matter, its trade balance, and on this we are running massive trade deficits in goods production, which have been increasing since the end of the recession.

Since employment in the United States hit its recent low, in February 2010, the economy has added 2.4 million jobs through November, of which 302,000 were in manufacturing.

But this represents 12.5 percent of job growth, pretty much consistent with manufacturing’s share of total employment.

When the Labor Department reports December employment numbers on Friday, it is expected that manufacturing companies will have added jobs in two consecutive years. Until last year, there had not been a single year when manufacturing employment rose since 1997.

But what Norris overlooks is the loss of manufacturing jobs in this recession was the largest ever with a loss of 15 percent. Compare that to the ‘90-‘91 recession where manufacturing lost just 3 percent of its jobs. So of course manufacturing jobs will come back somewhat.

Yet compared to other recessions, they are not coming back all that strong. According to the BLS, since the end of the recession, manufacturing has added less than 1 percent of new jobs. Compare this to the recessions in 1969, 1974, and early ‘80s when after 29 months manufacturing added 6.6 and 8 percent, respectively.

It’s simply wishful thinking to imagine that all is well in Mudville and we can just sit back and reap the manufacturing renewal. As I pointed out recently, the Boston Consulting Group has also succumbed to this kind of magical thinking. The reality is if America wants a manufacturing rebound, it can’t just hope, wish and pray. It has to act. And that means putting in place robust tax incentives for companies to invest in R&D and new capital equipment in America so that we lower the effective U.S corporate tax rate while also giving companies the incentive to invest in the building blocks of growth and competitiveness. It means much tougher enforcement of our trade laws against rampant mercantilists like China. It means expanding, not cutting, funding for important programs like NIST’s Manufacturing Extension Partnership. And much, much more.

Manufacturing can come back. Manufacturing needs to come back if the recovery is to get any real traction. But it will not come back by magical thinking.

About the author

Dr. Robert D. Atkinson is one of the country’s foremost thinkers on innovation economics. With has an extensive background in technology policy, he has conducted ground-breaking research projects on technology and innovation, is a valued adviser to state and national policy makers, and a popular speaker on innovation policy nationally and internationally. He is the author of "Innovation Economics: The Race for Global Advantage" (Yale, forthcoming) and "The Past and Future of America’s Economy: Long Waves of Innovation That Power Cycles of Growth" (Edward Elgar, 2005). Before coming to ITIF, Atkinson was Vice President of the Progressive Policy Institute and Director of PPI’s Technology & New Economy Project. Ars Technica listed Atkinson as one of 2009’s Tech Policy People to Watch. He has testified before a number of committees in Congress and has appeared in various media outlets including CNN, Fox News, MSNBC, NPR, and NBC Nightly News. He received his Ph.D. in City and Regional Planning from the University of North Carolina at Chapel Hill in 1989.

Gregory Tassey

I wish more people in the growth policy arena understood the problems with U.S. manufacturing the way Rob does. Instead, my fellow economists endlessly debate the pros and cons of more or less macro stimulus and what particular form it should take. However, 35 consecutive years of manufacturing trade deficits will not be stopped by business cycle stabilization (monetary and fiscal) policies. Rather, a wide range of structural problems need immediate and aggressive attention to provide the skilled labor, technologies, capital, and innovation infrastructure required by a competitive domestic manufacturing sector.<o:p></o:p>Greg Tassey<o:p></o:p>From: Innovation Policy Blog [mailto:post=itif.posterous.com@posterous.com] On Behalf Of Innovation Policy BlogSent: Friday, January 06, 2012 12:07 PMTo: Tassey, Gregory Dr.Subject: [innovationpolicy.org] Magical Manufacturing Thinking: Manufacturing NOT the Bright Spot in the U.S. Economy<o:p></o:p><o:p></o:p><tr><td></td></tr><tr><td width=”20″></td><td><tr><td width=”610″><o:p></o:p></td></tr><tr><td><tr><td></td><td width=”594″> </td></tr><tr><td width=”16″></td><td width=”578″><tr><td></td></tr></td></tr></td></tr></td></tr>

Kenan Jarboe

Rob is exactly right. Status quo policies will not revitalize manufacturing. Nor will a revitalized manufacturing base look like it did in the past. Our entire economic structure is changing — and manufacturing is being transformed along with all other sectors into a more knowledge intensive activity. We need proactive policies, such as an expanded MEP which Rob mentions, to help US companies make the transformation and create a more sustainable economic path.

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